Core view
Recently, the Federal Reserve is expected to raise interest rates strongly. On the one hand, the US employment data has gradually improved. The US unemployment rate was 3.9% in December 2021, which is gradually approaching the pre epidemic level; On the other hand, inflation remained high. In December 2021, US CPI rose by 7% year-on-year, reaching the highest value in nearly 40 years. Market expectations for the fed to raise interest rates are gradually heating up.
Judging from the resumption of trading in the past 20 years, gold prices have remained strong in the process of interest rate hikes by the Federal Reserve. Looking back on the two interest rate hikes by the Federal Reserve since 2000, gold prices rose with the rise of the federal fund target interest rate. Among them, from June 30, 2004 to June 29, 2006, the US federal funds target interest rate rose from 1.25% to 5.25%, while the gold price rose from US $393.0/oz to US $588.9/oz, with a range increase of 49.8%; From December 16, 2015 to December 20, 2018, the US federal funds target interest rate rose from 0.25% to 2.50%, and the gold price rose from US $1076.8/oz to US $1267.9/oz in the same period, with a range increase of 17.7%.
The main reasons why the US dollar remains strong under the interest rate increase are: first, it is difficult for the Federal Reserve to raise interest rates to substantially solve the problem of inflation. During the last two interest rate hikes, the year-on-year growth rate of us CPI increased from 3.3% to 4.3% and from 0.7% to 1.9% respectively. Raising interest rates will not reduce inflation, thereby increasing the anti inflation demand for gold. Second, the Fed’s interest rate hike will lead to an increase in real interest rates and corporate financing costs, which will slow down the U.S. economic growth to a certain extent. According to wind data, during the above two interest rate hikes, the proportion of U.S. GDP in the world decreased by about 0.10% and 0.04% respectively, thus increasing the demand for hedging gold. Third, gold has a high degree of participation in the capital market, and the price itself reflects the expectation of raising interest rates in advance. When the Federal Reserve officially starts raising interest rates, the risk factors in the gold market are released, and the gold price is prone to rise.
Although facing the expectation of raising interest rates, the upward momentum of gold prices is still. First, the inflation level in the United States is at the highest level in 40 years, while the prices of crude oil and other commodities are still rising, so it is difficult to effectively solve inflation in the short term; Secondly, the US economy as a whole is improving, but it is still fragile. With the gradual tightening of US monetary policy, it is expected that the progress of economic recovery will slow down, and even downward risks will appear; Third, Comex gold futures has been adjusted for nearly 18 months. As of January 18, 2022, it has dropped by 11.9% from the previous peak value, and the bad risk has been released to a certain extent. After the U.S. employment data was released in December 2021, gold rebounded rapidly after a brief decline, indicating that the market has begun to digest the negative impact of interest rate hikes.
Investment advice
In the context of the Fed’s expected interest rate increase, the gold price is expected to remain strong, and relevant enterprises may benefit, such as Zijin Mining Group Company Limited(601899) , Chifeng Jilong Gold Mining Co.Ltd(600988) , Hunan Gold Corporation Limited(002155) .
Risk tips
International geopolitical changes, the international covid-19 epidemic intensified, and macroeconomic policies changed.
